Goodwin Insights September 06, 2022

Late Filing Penalties Issued for the Non-fulfillment of the Luxembourg Real Estate Levy Reporting Obligation

The Luxembourg Tax Authorities have started to issue late filing penalties for a fixed amount of EUR 10,000 for the non-fulfillment of the reporting obligation regarding real estate levy.

In light of this action, we recommend that fund managers of opaque Luxembourg investment fund vehicles confirm their reporting obligation was fulfilled and, if that is not the case, proceed with the reporting as soon as possible before any penalty is issued.

Real Estate Levy Recap

The real estate levy was introduced by the 2021 budget law and the reporting obligation therein was clarified via an administrative circular issued by the Luxembourg Tax Authorities on 20 January 2022. In sum, opaque investment vehicles established in Luxembourg that receive income from real estate are subject to a real estate levy, which must be declared and paid annually to the Luxembourg tax authorities.

The investment vehicles subject to this real estate levy are those that are tax resident in Luxembourg and have a legal personality separate from that of their partners, such as:

  • Undertakings for Collective Investment (UCI);
  • Specialised Investment Funds (SIF); and
  • Reserved Alternative Investment Funds (RAIF).

The exception applies to investment vehicles that are created in the form of limited partnerships (i.e., “société en commandite simple” and “société en commandite spéciale”, respectively SCS and SCSp) to the extent they own (directly or indirectly) real estate in Luxembourg. This means that opaque investment vehicles with equity interest in tax transparent vehicles (such as for example SCS, SCSp, société en nom collectif – SNC, société civile - SCI or fonds commun de placement - FCP) that receive or realise income from real estate located in Luxembourg are also subject to the said obligation and levy as the real estate income is then deemed to have been received or realised by the opaque Luxembourg investment vehicle.

It is worth noting that Luxembourg investment vehicles not subject to the above mentioned regimes and taking the form of a fully taxable corporation (e.g. société à responsabilité limitée - Sarl) are out of scope of the real estate levy, as well as tax transparent Luxembourg investment vehicles (e.g. set up as SCS or SCSp), except for the notification obligation if applicable.

As from 2021, opaque Luxembourg investment fund vehicles in scope of this measure are subject to real estate levy at a rate of 20% on all income sourced from real estate located in Luxembourg, such as:

  • rental income deriving (directly or indirectly) from Luxembourg real estate assets; and
  • gains on disposal deriving from such assets (directly or indirectly via tax transparent entities, either on disposal of the real estate asset by the entity or disposal of the interest in the said tax transparent entity owning the Luxembourg real estate).

Lastly, there is a specific notification foreseen for opaque Luxembourg investment fund vehicles subject to SIF, UCI and RAIF regime for 2020 and 2021 financial years even if they did not receive or realise real estate income during said years.

Reach out to your Goodwin Luxembourg Tax Team for any assistance or further information you may require.